Credit Unions A Steady Force in Turbulent Market

Second quarter data shows that credit unions continue to be a steady resource for members as other lenders pull back from the market.


As other lenders pull back from the market due to concerns about credit quality or an inability to fund new loans, credit unions are a steady resource for members. Second quarter data shows that real estate and auto loan growth continued to slow among the nation’s 8,410 credit unions. Although slowing, credit union market share trends in each market are positive. Share growth is also picking up as credit union dividend rates rise. Attractive rates are also bringing in new members, with membership topping 88.2 million at mid-year.

Rates may not be the only factor in the membership growth. Market volatility provides an advantage to credit unions. Credit quality remains solid and liquidity is not an issue with credit unions. The willingness to meet the needs of individuals regardless of market conditions is what sets credit unions apart. Second quarter data highlights ways in which credit unions are doing just that:

  • Credit union first mortgage originations topped $28.9 billion in the first half of 2007, up 5.9 percent from the $27.3 billion originated in the first six months of 2006. As expected, the growth is coming from fixed rate firsts, which account for just over two-thirds of all first mortgage originations year-to-date versus 60 percent a year ago.
  • With home prices declining in a number of markets, home equity and second mortgage lending has slowed. Credit unions originated $17.9 billion through the first half of 2007, down from $20.8 billion in the first half of 2006.
  • Credit card balances are up 12.2 percent over the past year, reaching $27.5 billion.
  • Balances of member business loans topped $21 billion at the end of the second quarter, up 18.6 percent over the past year.
  • Credit unions are feeling the effects of the auto sales slowdown. The auto loan portfolio has grown just 1.1 percent over the past 12 months, with both new and used auto loan growth rates slowing.
  • Share growth has picked up to 6.1 percent over the past year as credit unions have moved rates upward. Although certificates have accounted for the bulk of the increase in share balances over the past year, money market and IRA balances are also rising. Members seem to be shifting from lower yielding regular share accounts into these higher yielding accounts.
  • Dividend payments to members are up 34.6 percent year-to-date versus the first half of 2006, a significant reason for the share growth momentum.
  • Total income is up 14.2 percent over the first half of 2006, led by increases in interest income. Loan interest income is up 13.3 percent, more than double the loan portfolio’s growth, while income from the investment portfolio jumped over 22 percent
  • Operating expenses are being held in check, increasing at about half the rate of income at 7.3 percent.
  • Return on assets is at 75 basis points through the first six months of the year, down 11 basis points from mid-year 2006.

Although ROA is down, credit unions are sacrificing bottom line growth in order to drive balance sheet growth. They can do so with their strong capital base, and the net worth to assets ratio is unchanged from a year ago at 11.4 percent. By focusing on consistently delivering value to members, credit unions are posting solid results in an otherwise turbulent market.

To learn more about second quarter results, join us this Wednesday and Thursday for the Quarterly Trendwatch call.